Compelling Arbitration

In an important ruling for businesses desiring to settle their legal disputes through arbitration, the U.S. Supreme Court has held that, where a complaint contains both arbitrable and non-arbitrable claims, a court must compel arbitration of the arbitrable claims. A court may not refuse to compel arbitration merely because it will lead to piecemeal litigation.

The ruling arose from an action brought by individuals and entities who bought partnership interests in funds co-invested with financier Bernie Madoff. After these investors allegedly lost millions of dollars as a result of Madoff’s scheme to defraud, they brought claims against numerous parties including the accounting firm that had previously audited the funds.

The accounting firm moved to compel arbitration of the claims against it based on an audit services agreement between the firm and a co-defendant. A Florida state trial court denied the motion because two of the four claims against the firm were non-arbitrable, and a state appellate court affirmed.

On appeal, the Supreme Court held that the state court erred in denying arbitration of the two arbitrable claims. According to the Court, the Federal Arbitration Act “leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.”

KPMG LLP v. Robert Cocchi et al., U.S. Sup. Ct., No. 10-1521, November 7, 2011.

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